IMF recommends to govt to broaden capital gains tax base and introduce a land tax. Your view?

IMF recommends to govt to broaden capital gains tax base and introduce a land tax. Your view?

By Alex Tarrant

The International Monetary Fund is advising the government to widen New Zealand’s tax base for capital gains and to introduce a land tax.

The recommendation comes after a regular annual ten day visit from IMF Mission Chief for Australia and New Zealand Ray Brooks, and is set to be presented to Finance Minister Bill English on Monday afternoon.

The government has already ruled out a broader capital gains tax and a land tax in its response to the Tax Working Group's recommendations in Budget 2010. Instead it chose to lower income and corporate tax rates, increase GST, and make changes to building and capital depreciation rules.

“We’re advising the government to widen the tax base for capital gains, and introduce a land tax to fund other tax rate reductions,” Brooks said in a media briefing before meeting the Finance Minister.

The level of the land tax would be left up to the government to decide.

“The particulars I would leave up to the government to decide, but the idea of this would be to broaden the tax base and also would help address some of the issues raised by the Savings Working Group concerning the penalty in the tax system against deposits in banks," Brooks said.

The IMF also supported the Saving Working Group’s suggestion for indexing interest income and expenses for inflation, Brook said.

The IMF had previously recommended the broadening of the tax base and moving away from income taxes to greater reliance on GST, but had touched upon capital gains and land taxes due to the working group reports that had been presented to the goverment.

PM says 'no'

Prime Minister John Key reiterated later a land tax and broader capital gains tax were still off the cards. Asked whether the implementation of one or the other could allow government to reduce income taxes to give people more income to spend, he replied:

“At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand."

“ I wouldn’t have thought we’d want to do that on the back of a very weak housing market at the moment,” Key said at his Monday media briefing in the Beehive.

“Capital gains tax is already in place. They don’t produce you a lot of revenue upfront, so they wouldn’t actually pay for the Christchurch earthquake in day one, and in our view they are an inefficient form of taxation,” he said.

House prices overvalued

Brooks said house prices in New Zealand could be 15-20% overvalued at the moment, although there was uncertainty around the figure.

“You can look at some very simple metrics and get some very large numbers. If you look, for example, at the house price to income ratio, that’s about 40% above a long-run average for the last 40 years for that ratio. You look at the ratio of prices – houses - to the rental income, that’s similar," he said.

“But other models that take account that over time there’s been a quite a substantial fall in mortgage interest rates in New Zealand – and that enables people to service a much bigger mortgage on a more expensive house – that might suggest an overvaluation in the range of 15-20% at present when you look across countries.”

New Zealand’s terms of trade was also a factor in house prices.

“The recent improvement in the terms of trade helps us out as households see that they have higher permanent income. It’s certainly a case in Australia where we see the house price overvaluation as a little bit lower, in the range of 5-10%, because the terms of trade there has been much stronger," Brooks said.

"So if you have a fall in the terms of trade, perhaps sparking a fall in house prices, or whatever shock may bring house prices back to equilibrium, that may have some impact on banks, but we doubt that that alone will hurt banks," he said.

"New Zealand’s different to many other countries, there’s full-recourse lending, you don’t get people walking away from their home.

"But if you add a combination of shocks to house prices, to the terms of trade, to that led to a recession and unemployment, you could see that banks could be hurt by that," Brooks said.

“I would add the footnote to that on the uncertainty surrounding the impact of the earthquake on the housing market, as you’ve taken out housing supply. The scale of that is a bit unclear,” he said.

Deficit to hit 9% of GDP on lower tax take

The IMF's growth outlook was uncertain at present due to the stalled recovery since mid-2010, reflecting the very soft domestic demand growth as households and businesses became very cautious about debt.

“And we’ve had the impact of the earthquake which creates considerable uncertainty around the outlook, particularly related to the timing and the size," Brooks said.

The IMF was expecting GDP growth this calendar year of 1%, and a pick up next year of around 4%. It is also projecting the 2010/11 fiscal deficit to reach about 9% of GDP.

“That [the deficit forecast] is much larger than budgeted,” Brooks said.

Finance Minister Bill English last week said the government’s operating deficit, before gains and losses, deficit should hit about 8% of GDP, or NZ$16 billion, in the current year as government paid the initial costs of the February 22 earthquake and took to books additional costs of future years.

“We have a slightly slower growth rate affecting the revenue numbers – some slight differences in our forecast for revenue for the coming year,” Brooks said.

Fiscal response

The IMF’s main advice was for the government to still return the books to surplus by 2014/15.

"Prior to the earthquake, the Prime Minister had announced the intention to return to a small surplus by 2015/15. That’s a little earlier than previously planned," Brooks said.

"We think that, although the earthquake has worsened the fiscal situation in the near-term, we think it’s both feasible and desirable to come back to the medium-term target for a number of reasons. It would help build a buffer against future shocks," he said.

"And while New Zealand’s public debt is expected to remain low by advanced country standards, New Zealand has very large net foreign liabilities – about 85% of GDP – and that calls for fiscal prudence.

"Particularly if global interest rates start to rise, low public debt in New Zealand would help contain the cost of New Zealand’s capital.”

(Updated with comments on fiscal response, GDP, video, PM's response, detail on IMF view on house prices.)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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"The government has already ruled out a broader capital gains tax and a land tax..." But that was before we'd had two earthquakes. When the facts change, maybe they reserve the right to change their minds?

Who voted for these IMF ass wipes  to tell us what to do in our own country?

Why dont the IMF take a hike, no one voted for them here in NZ or any other country!

When you borrow 90% of GDP then you essentially hand over your future to bankers.

The IMF and the ratings agencies are essentially agents of the world's bankers, or at least the credit markets.

cheers

Bernard

Default is the only way to really tell the IMF and the markets to go away.

 

Ain't that the sad truth.  Someone should research what the IMF were saying during the Reagan/Thatcher years.  My guess, probably arguing the quite opposite - lower taxes, less government/regulation and trickle down capital/wealth effect.

Bernard, do you know - did they have the same land tax advice for Australia?

 

KATE ... Australia has had Capital Gains tax for over a generation now ( 25 years) . If I recall it was introduced in 1986.

Their property bubble is driven  by migration not speculators . Also many people there dont mind CGT ....they buy property  , wait for it to go up in value , and then borrow against it , there by AVOIDING OR DELAYING the CGT event 

Boatman. There isn't the same obsession with investment properties. They buy a house to reside in as their principal place of residence, renovate it, restore it, extend it, basically spend a fortune on it. Many over-capitalise. Then when prices overtake their capital outlay, as in the current market, they unload and go renting for a while. Then start again. The family-home isn't subject to CGT. If you research the Australian Government revenues and taxation sources you will find the CGT brings in a paltry amount of revenue. Almost laughable. PS. On a dollar for dollar basis, rents are about half here compared to the rents I have seen quoted in NZ

Yep, I know that - I was wondering whether the IMF also suggested they introduce a land tax on top of their existing CGT.

... I'll  concede the need and the benefits of a land tax , but am still repelled by the CGT .

But as John Key personally painted National into a corner by copying the generous election bribes of Labour's Michael Cullen , little change will occur prior to the November election .

...  Assuming of course , that we don't go belly up before then   !

It's about time soveriegn nations told the bankers where to go. Any thinking person can see the blatent ponzi scheme these bankers operate under.

Bernard the market dosnt go away, it morph's into a different beast and probably for the better. At least the market would function as a market that is to say goods and services will go where they are required. Instead of where self appointed hit squads like the IMF in there ivory tower plus interest, telling everyone else what to do; that is not a free market! That is an agenda!

If you borrow from overseas substantially then you have to kneel to the IMF.....

On a brighter note, while the OECD seem to be goin off the right wing stupidity scale the IMF is showing signs of being more moderate and less idealogical ie less right wing nuts....

regards

 

 

 

When you have to rebuild your second largest cities CBD, then you are going to have to get your hands on as much cash as possible. CGT will be at the on the table.

And...Stamp Duty. Make it exclusively dedicated to the EQC to make it politically sellable.

Look at JK's words,

"“ I wouldn’t have thought we’d want to do that on the back of a very weak housing market at the moment,” Key said"

So at the moment......so he hasnt closed the doors on it....

regards

What a pack of lefty radicals this IMF must be!!

Seriously tho, can we afford to keep our narrow based tax structure, & the economic distortions that flow from it, considering our impecunious circumsances? ("impecunious" is "broke" to you Wolly)

Cheers

Wrong Philly , these are hard nosed right wingers. Read about the IMF and  Bretton woods agreement.

They use Amercan taxpayers money to prop up highly indebted countries like NZ, Greece Ireland , Spain and Portugal.

You should understand that all income should be taxed equally .

Why tax savers at 30% and then give tax breaks to borrowers who borrow heaps to specualte on housing?

Considering the fact that a fair chunk of National Party rump is dependent upon a fat capital gain on land to bring home the bacon and fund retirements..a cgt and a land tax would be like a very quick way to get turfed out of the Beehive.....does the bloke from the IMF not grasp that.

He also seems to fail to understand the policy of planned debasement...also known as thieving from the savers to bail out the splurgers...so this idea of a lower tax on deposits has the same value as his cgt and land tax.

 

Selling it to the public isn't the only issue: the Property Council memership have combined assets of $40B and plenty of money to throw at an election campaign (and dirt at Peters the maverick).

I like the idea of a land tax mainly because it is anathema to the types who drooled at those property seminars.  The Richmastery type of syndrome that has permiated society over the last 20 years or so doesn't seem very healthy. Also I like the idea expressed by henry james that "no body made land" and when you occupy it you deprive someone else of its utilty.  Those aren't evry good reasons but I see that it is a popular idea amongst some economists and "was all the talk at the Association of Economists conference.

CGT is totally unnecessary, as is a land tax.  The Canterbury earthquake is terrible and will change the city forever.  Too many good people lost their lives, houses, livelihoods.  But putting on more pain like a CGT just punishes asset owners...

CGT just punishes asset owners...

.....

Remember Dolf DeRoos?

http://www.listener.co.nz/issue/3314/features/1021/house_of_the_rising_sum,2.html;jsessionid=99A4ED7F13809E578574311D06180175

Richmastery?

Property Investor Magazine with a person lounging in a hammock on the cover?

And then there are all those realestate agent stories?

Leaky homes?

@jh ....IF CGT punishes asset owners why then are savers punished at 30% taxon their interest savings?

All income MUST be treated equally , whether its from trading houses or doing a days work .

@jh ....IF CGT punishes asset owners why then are savers punished at 30% taxon their interest savings?

All income MUST be treated equally , whether its from trading houses or doing a days work .

Uh no, a business who brings in foreign earnings ie produces a good is way more valuble to NZ as a whole then someone flicking on property....in fact the latter is probably detrimental to NZ as a whole.

regards

Why make it complicated? Simplest solution is to charge each of the overseas banks a $1 billion per annum license fee to set up their stall and do business in NZ. Cheap to administer. 4 invoices.

Nice one iconoclast, makes a lot of sence if you want the aussie banks to pull out altogether and send the 25k+ jobs elsewhere. Why don't you look at Kiwibank which is nothing short of a joke - the model is broken. If you remove the payment fees it gets that was orginally NZ Post revenue you will find that that it makes even less money. Kiwibank makes stuff all from its banking operation, it sucks capital like there is no tomorrow from you as a tax payer and provides nothing in return.

Correct, look at their pricing on either Loans or Deposits which is not much different from mainstream banks and from what I have seen and heard a lot are leaving Kiwibank under the old saying "Buy on price and leave on service"

I am also told from clients that their service fee structure is one of the highest and they won't negotiate as well.

Also remember KiwiBank was one of the Banks with the hightest cost to break out of a fixed rate mortgage.

PS you willl struggle toi find a branch manaager in one of their branches to eye ball.

 

 

PS

 

Not much different, yeah right.

I have been with kiwibank for 8+ years, their mortgage rate has pretty much always been a fraction below the Ozzie four, so Ive saved.....I also pay very little in banking fees where ASB used to charge me $10 to 25 a month, that adds up over a few years so Ive saved.    I use Internet banking and when needbe phone banking, and ring thier call centres Ive found their call centre staff first rate and ditto their mortgages staff/dept.....

Yes they have/had an outragious break fee....Im sure they will get/got slapped over that.

If you feel the need to eyeball a guy in a suit on every occasion who's just selling you product off a cheat sheet as opposed to a phone call where someone does the same thing but can accelerate that phone call to someone more senior to get an instant result if needbe well fair enough that's potentially your loss......

regards

 

We did have opportunity to own our own Banks, remember share listings for BNZ , Westpac (TrustBank) but we all sold out as Kiwis can't get their head around buy and hold.

If a Bank was listed on the sharemarket today how many out there would buy some shares to get hold of some the excessive profit that the Banks cream off.

(Hasn't the Heartland Bank just done an IPO?)

I think the IMF is on the right track for NZ - I hope the government listens. a) We do need a CGT for non-own-home residential property to encourage more productive investment. b) Also a land tax to widen the tax base (i.e. too many people avoiding income tax and there are many who use property to reduce their income tax, see Neville Bennitt's article on ti last year). c) Indexing idea is also spot on. Why save at present with high inflation, high RWT and low interest rates (need the indexation)....otherwise its just business as usual in NZ with very poor investment choices which stymie the long term economy

 

I can't believe this. A CGT is inefficient and uncertain. It has serious flaws. This subject was flogged to death a couple of months ago.

..maybe it was iconoclast, but I didn't see that debate. In my mind if you pay CGT on shares and other investments, it's carzy to exclude residential property (except for your own home). Encourages investment in houses which don't produce anything.

Why exclude the family home? A Capital Gain, is a Capital Gain, is a Capital Gain ? Index it for the CPI or the RPI or whatever you like. But tax the sucker....because where there's an exemption, there's a loophole...

...I think it's just nice to exclude family home. But economically I think you're right Nicholas

I think one of the comments on NZ's GST compared to VATs/CGTs across the world is because its equal on everything its hard to dodge and pretty much collects clsoe to what its expected to collect...

So if you do a CGT on a house, when you sell you pay a % tax no matter who owns what, simple.  Also another simple, the richer you are the more able you are to dodge paying your fair share of tax, so making sure there are no loopholes is the way to go.

regards

Nicholas Arrand, I like that. Couldnt have said it better myself. "where there's an exemption, there's a loophole"

see below

Excluding the family home would just complicate things and as you rightly said create a loophole.

1.An investor could classify one of their investment property as their  main residence to avoid

 

   paying capital gains tax (CGT) when it is sold

2.An investor could sell his primary residence without paying CGT and move into one of his

  investment properties and couple of years later sell that property and claim CGT exemption  

   on that one too. 

 

 

Not just that, but what about home in Trusts, and/or with multiple owners, take the case of separated family with wife living in family home, hubby goes out and buys 50% of another home with new partner, what gets taxed and at what rates if both homes are sold? You'd have homes being transferred into kids names for (cough) "tax optimisation" reasons.

Too confusing!!! As St N says - tax the lot, or not at all - anything else just won't work

I don't think there should be an exemption but a regressive CGT (decreases with the length of time you've owned a property) makes sense to me.

well said NA.. hammer. nail. head.

Iconoclast:  .... so long as you interpret John Key dismissing a CGT out of hand as "flogged to death".  There may be many who hate & deride the idea, mainly out of self-interest (except for your good self of course), but that hardly counts as reasoned debate & rationality. 

Cheers to all

Incorrect. When this subject came up last time, no reference was made to John Key. I put forward several reasons why it won't work if introduced at the top of the asset bubble. If introduced now it has the potential to do the very opposite of what is intended, and reward property investors with a "double dip" taxation bonus. I put forward several alternatives plus comparative examples. Search the archives.

...hmmm...if a CGT allows for deductible losses, at the height of the bubble, you would be correct Iconoclast...surely though no government would design it that way

Everyone is up in arms about the IMF comments , but Kiwi's need to get over it . We are up to our eyeballs in debt , we have no savings , we tax savers and reward property speculators with tax  tax breaks . WTF .... where have you of such a skewed tax system as we have here . All income must be treated equally , or you end up with the distortions we currently have , with everyone looking for passive income from migrant Chinese tenants . We canot all sit on our arses and be lanldords , thats not wealth creation.

I think the man who introduced a CGT in Canada about 40 years ago said "a buck is a buck is a buck".  That should be the basis for a fair & balanced tax system.

Stick the IMF comments! Whats the IMF ever done for you? When did you vote for it? Whose your IMF member with your local community interest represented?

This class of parasite live in fancy castles of paper and lord it over you serf. The distortions are there because of IMF type interventions for years and decades.

The IMF and World Bank create problems not solve problems. 

yeah but something has to give Wolly, and that "somehting" whatever it is will be unpopular.

Sure a land tax and especially a CGT  may be rather unpopular. But so would other options such as getting rid of WFF, cutting education and health etc etc 

The Govt has to make one or more of these hard calls if this country is to have a future

...so true Matt...and soon that will have to start happening...we can't keep borrowing to spend more than we earn. The state asset sell-off will only delay the inevtible, which will be cuts...or we will become a client of the IMF like Ireland. 

I agree with the IMF in this case but...

The IMF also has a record of telling small countries to go on an austerity drive when in recession and drowning in debt.  They don't like countries "re-financing" and defaulting on debt. Only big countries seem to be allowed to print money and claw out of recession the Keynesian way. Mind you, most small countries don't have their debt denominated in their own currency like the lucky old USA.

 

Hi all, have updated with the PM's response (had to rush off to his presser hence the lack of updates on this thread). Just going in to update with further IMF comments. Was a 50 minute media briefing :(

Key wasn't too happy about it all (see how he answers in the video above).

Cheers

Alex

Sepherial ... please CITE ONE EXAMPLE of where the IMF has been called in to rescue a country in debt crisis , and has been the cause of that crisis? 

They are not pleasant to deal with with when you are a bankrupt nation , but in recent years they have helped  Russia , Poland , Argentina ,  the Czech Republic and numerous other smaller countries get back on their feet.

What people dont like about the IMF is the medicine they are forced to take when they are sick.  

ARGENTINA. is a victim not a beneficiary of the IMF and World Bank

 Russia yep a few oligarchs... nice economic model

The question is did the IMF casue the problems in Argentina , or was it the leftwing Argentinian Governments  stupid obsession with pegging their currency the Peso to the US Dollar in an ill-fated attempt to mask their economic mismanagement, inefficiency and overspending  ?

The IMF are not to blame, the actually rescued Argentina.

What came first chicken or egg?

I think you will find that Argentina has through history, been right wing dominated.

I agree with you, but disagree the IMF has done much except have its agents wait in the wings. Resources and infrastructure are more valuable than pieces of paper from central bankers who finance this organisation and others like it.

http://www.thirdworldtraveler.com/South_America/EconDebacle_Argentina.html 

The common theme is the austerity programmes dont  seem to effect the elites. I only have to view the current banking conman bail out to know this as fact.

Naturally the same people who manage this organisation own most of the banks who finance it and the trans nat corporations that buy stuff for cents on the dollar....

 

 

Away back in the mid 19'th century , Argentina was ranked as the fourth richest country in the world ........ And then a successon of corrupt army generals and a smattering of greedy socialist dictators took control of the fair land , and it has been a descent into civil wars , financial defaults & collapses , and hyper-inflation , ever since .

.......... During the rare few years when democracy and capitalism have gained a foot-hold , the economy has surged and the citizenry been enriched ............ And then , all too soon , another dose of dictatorship & socialism has wrecked the whole kit and caboodle , once again .........

Here we go again.

Back to my hobby horse

http://assettaxnz.blogspot.com/

 

A CGT  only will work as a revenue gatherer if all properties are taxed.  But even the Greens say that owner occupied properties should be exempt.   Once you go for that option, whether one cares to admit it or not, any CGT with such a proviso, is politically driven and not financially going to raise much.  In fact what happens is that people will just spend more and more on their own 'Mc Mansions' that don't incur any CGT .  Stupid idea.

" I wouldn’t have thought we’d want to do that on the back of a very weak housing market at the moment," said Key. 

The irony is - introduce a land tax and the price of property could likely reduce significantly - which indeed would serve to strengthen the property market considerably.

We do not have a weak housing market in terms of prices (as pointed out by the IMF) are probably 15-20% over-priced.  What we have are weak sales as sellers fail to meet the market.

Key would rather increase GST and excise taxes again as opposed to tax any form of capital.

 

 

Johnnie boy just doesn't get it does he now?

Mr Smiley is not prepared to contemplate any measure which might be politically unpopular

Put it this way, if he doesn't undertake  significant reform then he is likely to be elected. But at some point NZ will pay the price, and in time he will go down as the popularist PM who didn't have the balls to make the right calls (no rhyming intended). Can't he not see that bigger picture?

And at the end of the day the guy is loaded, so what if he isn't re-elected because he made the right call which happened to be unpopular? He can retire in peace knowing he made the rihgt call for the country's future  

its called integrity    

"its called integrity"

Exactly!

The question is: "does he have it"?

If if he introduces it and the other lot say they will throw it out if they get in we are back to square one if the other lot get in because no one wanted it.

Great to do the right thing as you say but if it doesn't survive the next election then what?

But then throwing out CGT could be Labour's election bribe, instead of increasing WFF or some other rubbish..

"Mr Smiley is not prepared to contemplate any measure which might be politically unpopular"

 

What about privatising public assets?

double post. apologies.

 John Key states: "..it (the proposals) has an impact on every single homeowner in New Zealand.." But John. We have always been told that 'if you buy and sell in the same market, it makes no difference'. Except that if prices fall, as they will, it costs less dollars for anyone who wants to 'trade up'!  That's more to spend on other items; more to stimulate our sorry economy with.The only ones to be subdued will be the over extended, and I'd argue they need to be. If they can't afford to hold their 'investment' properties in this unnaturally low interest rate market, as they will now need to as prices fall, then perhaps they need to reconcider their investment. After all, aren't they holding their portfolios for 'rental returns' ( not tax supported capital gains! Oh, no...) to support them in their old age? These suggestions will entrench that!

Way back in 2009...

Opinion: The merits of Land Value Tax; lessons from Hong Kong

Chomsky as well...!

Just a little worried by the IMF liking the idea...

Nice link KWJ. Finishing with...

"Conclusion

It is inefficient and inequitable to avoid taxing land. Land taxes are avoided, however, by political systems which have a large landed interest."

Thanks Nicholas... you did it all yourselves though.

Great suggestion too: ( credit to 'The Ghost of George Grey' )

"The obvious way is to start with a low rate, but a better way is JS Mill's suggestion to exempt the current value of the land but tax away any future increase in value entirely with a land tax set at approximately the long term interest rate, around 5%, that way nobody loses anything other than their future unearned "capital" gains."

With rates already in place a land tax is just collected with that, so I cant see it being inefficient or costly to collect....inequitable I might be persuaded on that.... The obvious thing is that we cant afford to see the property bubble burst and no Govn wants to be held responsible for that melt down....and a meltdown it would be....we could end up like Ireland except we are not in the EU so have no one to bail us out....

regards

 

Overseas Investment and Current account due to out tomorrow.

Will be very interesting after the S & P warnings.

We are deeply in hock and our options are very limited.

Looks like a downgrade coming up.

Room so small, elephant so big, uggghhh.

Well said IMF.

Well said Raf and co. (whoever you might be ...???)

http://sustento.org.nz/dinosaur-economics-bill-english-loads-up-more-debt/

Cheers, Les.

www.mea.org.nz

 

The PM is a bit touchy isn't he? Threw out Peter Bill's (UK rugby journalist) suggestion that, sadly ChCh wouldn't be able to host the world cup, funny that as one week later hit man Brownlee admitted what Bills and any sensible person had been saying

So can we now expect Bill English to come in and say actually CGT and land tax has merit??? 

As someone once said, Key is a good politician, but a poor and visionless leader

 

Matt - I thought they had said, "Good antenna, poor compass." Or some such?

"visionless leader" ... you got that right.

What happened to all that "aspirational" stuff? He sold me. I won't be buying it again though.

How much noise do you hear from the Feds decrying a CGT?  Nary a squeak, from what I've heard.

The obvious conclusion:  At Day One, JK & Bill told the farmers in the woolsheds & milking sheds up & down the country that there would be no CGT on National's watch.  End of story.

Anything since said by JK & Bill is simply to justify that commitment.  And watching JK today, pretty pathetic attempts at justification too, he is barely bothering to engage in the debate.

I think that landlords were actually unintended beneficiaries of the failure to have  CGT, especially when LAQCs etc were introduced.  But they have now increased to being a powerful lobby in their own right.  So doubling the reasons for National not to risk affronting their core support bases. 

Cheers to all

For a thorough understanding of the impact of land on the economy one should read Fred Harrison's: "Boom, Bust: House Prices, Banking and the Depression of 2010".

It was published in 2005 and is a very scholarly and well researched account of land and banking going back to the first recorded mortgages back in the 1600s. (Incidentally it was the Church that kicked off this whole land subdivision business). It's an incredible book just for the historical account never mind the pint point precision of his prediction. I am happy to lend anyone my copy as long as they promise to send it back or pass it on :-) 

When you have read that you will understand why land (and resources in general) and not income should be the basis for taxation. 

You may further be interested in a working proposal we have for a Guaranteed Minimum Income to be funded by a comprehensive wealth tax plus income tax. It's a first draft so all feedback is welcome. 

http://sustento.org.nz/wp-content/uploads/2007/05/Guaranteed-Minimum-Income-For-NZ.pdf

 

When I see the wealthy can afford accountants to dodge tax, then I have to wonder if other ways to collect taxes might not be fairer...

regards

Steven - indeed. CGT on all assets EXCEPT land based assets. Land tax on land based assets. So simple, so efficient - and then lower corp, paye, trust tax to a new lower flat rate across the lot, why would people - and parliamentarians - Sir Humpreys, et al, etc - not want to pay less corp, paye, trust tax? Why do the left keep supporting a rich prick approach?

Pluto, wot?

Cheers, Les. 

PS - Amanda, Bernard - thoughts?

Any IMF discussion about SOE  part privatisation idea? Outside their brief at the moment?

Yes, of course, asset stripping is a long time favourite of the IMF and they haven't failed to dissapoint this time.

From the STUFF report:

"It should also look at rationalising its capital spending, such as through the sale of stakes in state assets"

Their banker and Global Elite buddies will be drooling at the prospect of getting their greedy hands on prime Kiwi infrastructure.

Which raises the point KiwiDave...who brought about the asset stripping...which fool set the economy up for a fall....not cullen by any chance!...

We would not be in this shite had Cullen and Clark way back in early 05 made it policy to throttle the property splurging madness that built the mountain of debt that promises to crush the economy but brought Labour lots of votes and another three years of snouts in the pig trough........Cullen and Clark....our worst ever "team" effort.

Land Tax might dampen this:

Good news for Auckland Property Investors in the long term

November 20th, 2010 | Author: David Whitburn

The Centre for Housing Research Aotearoa New Zealand (CHRANZ) has come out with a large report detailing the housing needs for our country’s largest city and economic powerhouse, Auckland.   I invest in Auckland, and as President of the Auckland Property Investors’ Association, I was very pleased to read this report.  The news is excellent for Auckland property investors as it shows demand for Auckland housing is increasing which will put up values and rents in the long-term, and once we exit the downturn phase of this current property cycle, we will pass into the recovery phase and see a strong wave of rental increases and sound value increases, and then the boom phase will arrive where we shall see very strong capital growth (in excess of 10% per year).
The good news is that Auckland’s strong population is set to continue, and demand will increase from the 431,890 dwellings there are in the Auckland Region (ie. Auckland – the Super City) in 2006 at census time, by 39.3% to 601,420 by 2026.  This is a lot of demand that will only help property investors in terms of raising our rental income streams and also getting increases in the value of our properties.

http://www.davidwhitburn.com/tag/auckland/

Banks: Greater Auckland infrastructure needs investment of about three billion ($3 billion) a year, for the next 20 years. Total – 60 billion ($60 billion). We cannot do it from income tax, we will do it as Brisbane is completing their infrastructure – government, city, private, public, partnerships, and much of the future will depend on our ability to attract international investment in the city’s economic infrastructure.

http://www.ucpnz.com/readnews.asp?newsid=1144

The report added that there was little evidence that immigration boosted local incomes. In fact, the need to build roads and schools meant that net migration contributed to the national deficit.

"Migration is another issue that the government should investigate further," the working group said. "There are indications that high immigration rates have pushed up government spending, house prices and business borrowing, and prevented necessary adjustments to the economy."

http://www.stuff.co.nz/business/4622459/Government-policies-blamed-for-h...

 

Who Funds National??

Time for Fran O'Sullivan to take the govt to task - I expect a piece from her in tomorrow's Herald

Someone needs to give these muppets a decent rev up 

 

 

This article sums up my opinion of the IMF....

http://www.blog2.tshirt-doctor.com/?p=22295

 

 

 

 

There is broad consensus that the NZ property market is overvalued by some 20%, yet, the PM feels that this amounts to a "very weak housing market".

I suppose from his point of view a healthy housing market would mean a return to the doubling-every-5-years pattern.

New Zealanders, even the PM, have to understand that despite the money for nothing party quite a few people have been celebrating last decade buy churning around houses, this system of false wealth creation has done a lot of damage to New Zealand's future as a whole, because capital is redirected from creating sustainable industries and enterprises into mindless real estate speculation. This is the root cause why is NZ falling behind at an accelerating pace internationally.

 

 

Well at least we know what one of the conditions will be when a future government goes cap in hand to the IMF.

FYI from the IMF's report. The 5% structural budget deficit is the real problem.

http://www.imf.org/external/np/ms/2011/032111a.htm

Although public debt is projected to remain low by advanced country standards, New Zealand’s large net foreign liabilities (about 85 percent of GDP) calls for fiscal prudence. If global interest rates rise, low public debt would help contain the rise in New Zealand’s cost of capital.

• In a tail risk scenario where banks’ asset quality deteriorates sharply, they present a contingent fiscal liability that limits the extent to which public debt can be raised without hurting investor confidence.

• Reducing net public debt to below 20 percent of GDP over the next ten years would put the budget in a stronger position to deal with the fiscal costs of aging.

9. We encourage the government to take concrete measures to control spending and thereby strengthen the credibility of budget plans. Even excluding earthquake-related expenses, government expenditure has risen significantly in recent years (up by 6 percent of GDP over the 6 years to 2010/11). Over the same period, the structural balance deteriorated from a surplus of 3 percent of GDP to a deficit of 5 percent of GDP in 2010/11. Reducing expenditure relative to GDP would be needed to return to structural surpluses. To this end, there is considerable scope to trim transfers to middle-income households, rationalize capital spending (which is high by advanced country standards), and improve the efficiency of public service provision.

Ground hog day!

Have we, as a nation, not already listened to this rhetoric 20 years or more ago?

Its the same report.  Most countries recieve this report when theres some more useful infrastructure up for grabs and a captive audience to milk dry whose outlook is lost in whats right wing and left wing.

The higher ruling elites set these institutions up must laugh there heads head off!  

The ruling elite are niether left or right they just are!

Years later their still laughing at the stupid sheeple who still havnt figured out there reading the same report from 20 years ago.

 

 

Now thats more like the IMF we know. Cut government spending, rise interest rates, increase the tax base, safe gaurd the banks assets ( houses and farm  values ) familiar territory again.

 I was getting worried for a bit there, thought the leopard had changed its spots.

 I posted this from one om favorie bloggers at the weekend and will do it again in case a few missed it.

Drjonathanwilson

 

Whilst general trends are correctly identified by many on these blogs, for example the long term economic and social risks of a currency union across economic regions with significantly divergent rates of productivity, I think that it can be a useful exercise to attempt to join up the dots in a world of interlinked but unintended consequences or random events in order to get an early warning on the next major event. 

If we join up the dots by starting with the dot that is likely to have the biggest effect on all the others, I would suggest that that dot would be the size of net US debt and the continuing size of the US deficit. A US default on its debt would be the equivalent of an earthquake, tsunami, and nuclear meltdown all rolled into one with regard to its effect on the world’s financial systems. 

Banks, large and small across the globe would have their balance sheets vapourized overnight as the value of their dollar assets are downgraded. Interbank transfers would instantly freeze, credit would be non existent and global trade would be something in the rear view mirror. 

But what would trigger a US default? As in all bankruptcies (because that is what a default is) the underlying cause is transaction insolvency (or if you prefer, a business model that no longer works). The signs of overall economic transaction insolvency are a combination of persistent rising debt (the US has that in spades) and rising unemployment particularly among the young (again the US is a star in this category). 

In other words wealth is being consumed in the economy at a greater rate than it is being replaced. This is typical of economies where the capacity of voluntary transactions (private sector) to replace the loss of wealth through government induced coercive transactions (made possible only through taxation) has been exceeded.

Therefore a US default is increasingly likely if random or unintended events cause the US deficit to grow. Hence the importance of the other global dots derives their importance in relation to how they affect long term US solvency.

So how do the other dots around the world positively or negatively affect US solvency today?

Let us consider Japanese, Middle East, Euro and BRICS dots and their effect on US solvency.

The catastrophes in Japan – result negative effect due to repatriation of US denominated assets reducing liquidity for US treasuries and hence raising yields first in the US and thereafter worldwide. Increased interest rates on US debt increases the US deficit through increased interest expenses.

Middle East – no brainer – oil price rise results in falling US consumer demand equals reduced US solvency equals increased US debt as total tax revenues fall. Secondary effect – increased cost of US borrowing as sovereign risk rises.

Euro area – Increased interest rates plus increased energy costs equals falling demand and hence rising insolvency first within PIIGS and later to the core. Failing Euro equates to greater Fed exposure through central bank support in liquidity to the EMU banking system. This is turn equals increased likelihood of US insolvency. Secondary effects include declining US exports to the Euro area as consumer demand falls generally in the EMU region – increasing US insolvency.

BRICS – China in particular – rising inflation results in rising interest rates which further drains liquidity from the US Treasury market. Secondary effects include falling Chinese trade surplus as US demand falls and when coupled to falling Chinese domestic demand due to interest rate increases (and hence falling property values), Chinese GDP contracts more than anyone has predicted. Chinese repatriate foreign holdings in the form of food commodities. Overall effect is to advance US insolvency by raising US yields. 

The sum of these interacting variables are rising US yields in a thinning market against a backdrop of increasing doubts about long term US solvency. As these doubts grow two trends emerge (a) major countries central banks begin to take actions to insulate their national financial systems from US contagion (Glass Steagall type legislation enjoys a renaissance), and (b) the pressure for a “world currency” increases from the lunatic fringe in an attempt to bury the underlying global insolvency problem.

We have always lived in dangerous times but Fort Moraymint looks increasingly like a good destination before they raise the drawbridge.

Jonathan

The Land Where We Belong

Posted on December 1, 1995 by George Mombiot

The developers’ power over the development process results in some of Britain’s most striking democratic deficits.

/

One solution is land value or development taxation. Not only does this lead to an immediate return of revenues to the community, but it is also likely to bring land prices in cities down to accessible levels, affording both communities and councils the means of reclaiming some control over their surroundings. Such taxation, however, can only ever be part of a solution. The pursuit of land rights in Britain will be complex and troublesome. But if we neglect it, we can scarcely claim to be the custodians of our own existence.

 

http://www.monbiot.com/1995/12/01/the-land-where-we-belong/

You are absolutely right. A GCT or land tax will never even be considered by any NZ government (certainly while the boomers are still sane enough to vote). A pointless discussion.

However those that think a GCT or land tax is needed avoid harm to NZ in the future is wrong…the big damage has already been done. I came to NZ eight years ago, and in that short space of time NZ fallen from a small but robust little economy to a place where wealth and living standards are beginning to slip.

Foreign debt levels are now similar to Ireland and Greece, GDP fallen to the level of Angola, kiwi dollar fallen 23% against the Oz dollar…need I go on?

Don't blame the PI's, they only invested where the best returns were - who wouldn't? Both labour and national failed to direct investment into productive industry. NZ isn't Australia - we can't just dig up wealth. What is lacking here is the drive to create export industries other than sodding milk. But with all the tax breaks and loop holes, property is a no brainer - it was a simple decision for thousands of kiwis. That simple decision is the great shame that will haunt NZ.

NZ chose its future, has made its bed and now will have to lye in it!

Don't blame the PI's

Unless government policy is swayed by PI's. The Property Council (for example) about 20 corporate members and $40 in assets..... they wouldn't......??

 “At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand."

“ I wouldn’t have thought we’d want to do that on the back of a very weak housing market at the moment,” Key said at his Monday media briefing in the Beehive.

 Just shows how blind our government is to the issues of housing affordability and inflated values propping up the NZ economy.  Also shows their short term vision and a lack of kahunas to do what is best for the whole country.

 “Capital gains tax is already in place. They don’t produce you a lot of revenue upfront, so they wouldn’t actually pay for the Christchurch earthquake in day one, and in our view they are an inefficient form of taxation,”

Capital gains tax does exist but it's the lack of enforcement and the fact that it's damn near impossible to enforce that makes it inefficient.  I believe the majority of property "investors" should all be taxable under current tax legislation on the eventual sale of their rental properties.  Capital gains tax relies on the intention of the purchaser to make a profit on the future sale of the asset.  This is the hard part to enforce.

In my opinion there are two reasons the majority bought into rental property - capital gains and tax advantages.

To receive the capital gain the property must be sold, therefore the purchaser always had the intention to sell for a profit at some time in the future and the entire sale value should be taxable.  Unfortunately, it is proving the intent at the time of purchase that is near impossible, but I'd be willing to bet that the majority did not purchase for rent returns.

Entering into a transaction purely for tax benefits also creates the issue of tax avoidance but also relies on proving intent.  The tax benefit may be legal but the intention of avoiding tax is illegal.

 

The property  CGT could be very easy to police. Just send out a form to all taxpayers asking them how many properties they have had an interest in, directly, via family members, and via trusts etc., over the last 20 years.

Get a bunch of unemployed or students to look over the answers. Anyone involved in, say, more than 6 properties, is a potential professional property trader and in need of further investigation.

If necessary include some declaration on the form to the effect that the signatory has not attempted conceal any gains, with penalties for false declaration.

Any loopholes will soon become public knowledge through sites such as interest.co, and any necessary revision can be easily and cheaply achieved.

There are too many people sitting on their butts wringing their hands on this.

Cheers

Unfortunately, it is proving the intent at the time of purchase that is near impossible, but I'd be willing to bet that the majority did not purchase for rent returns.

 

Pretty easy to work out here: if rent did not exceed all costs (including depreciation) then they couldn't have purchased for rental rents beause there were none so msut have been for capital gain so is taxable.

If someone purchased a property and it created a taxable income during the period of ownership then they have paid tax on the income so shouldn't need to pay tax on any capital gain. You choose which tax you pay by the way you structure your affairs but can't have it both  ways.

You would need some other controls (a $1 taxable profit wouldn't cut it) but might be a fairer option.

This government is very good at ruling things out but seems to have little to offer itself....apart from more privatisation. 

Without some clear vision and radical system changes we are set to drift aimlessly downstream until someone says our number is up. 

Lame. 

I wouldn't listen nor follow IMF's suggestions. Empirical evidence bears that a majority of countries have fared far worse after taking in an 'IMF Program'. Also, the Government's focus should be on raising productivity instead of taxes, retooling the educational sector, widening the country's export manufacturing base, diversifying into high-value technology-driven industries and businesses and cleaning up our social safety nets which for the most part has been abused for years. People here are reaching a saturation point where it's becoming clear to many that paying more  taxes doesn't result in better outcomes. They're moving out, not staying put. Life isn't getting better in New Zealand, it's getting worse. We'd soon see ourselves becoming a third world country and becoming de facto employees of the government at the rate honest citizens are being taxed on all possible fronts.

       

It's so easy to reduce house prices - just increase densities.  It's crazy having the central city suburbs all zoned for 1 house/site (Res1) or 1 house/500sqm (Res 5).  My  house could be 30% cheaper if I could stick another dwelling on the site - and if the HIRTB and yard rules were rational both houses could have better amenity than the one that's there.

Introducing CGT is not going to produce any more houses - which is the core problem.

The problem with that is you can get an ugly urban jumble far removed from any principles of good layout or ecologically sound design.

Just shows how blind our government is to the issues of housing affordability and inflated values propping up the NZ economy.  Also shows their short term vision and a lack of kahunas to do what is best for the whole country.

.....

National works for the Property Council and the Property Council see affordibility as

"New Zealand’s willingness to value its own landholdings "

http://www.scoop.co.nz/stories/PO1007/S00062/overseas-investment-necessary-for-new-zealand